The yields on Diamond Bank Plc’s $200 million Eurobond closed lower for the second straight day at 25.40 percent Tuesday, according to FMDQ data, as investors continued to react positively to the retail lender’s merger with Access Bank Plc.
The bond price also sustained a steady march upwards, rising to 93.59 Tuesday from 93.33 Monday and a record-low of 90 in November. The bond presents an opportunity for investors to make profit as the price nears its par value of 100.
“Investors were heaving a sigh of relief upon the Access and Diamond bank deal and that has paved way for the Eurobond rally we are seeing,” a South-African based fund manager told Business Day.
READ ALSO: Access Bank to raise $200m, write off all Diamond bad loans
The inverse relationship between bond prices and yields means that when yields decline, prices rally in a show of high investor demand. During a bond sell-off however, yields rise and prices fall in reflection of negative investor sentiment.
Diamond bank’s Eurobond had endured a thick-sell off that was sparked by credit downgrades from the three largest global ratings agencies, Standard & Poor’s, Moody’s and Fitch.
All three downgrades came in a scorching month of November that also saw the tier-two bank announce it was revising revenue forecasts lower. Investors panicked, sparking a sell-off that has just only been cut short by the merger deal.
Some investors will be beating themselves for not betting on the Eurobond at a time the sell-offs intensified and yields climbed as high as 31 percent late November, which was three times higher than the 10.9 percent average yield on the outstanding Eurobonds of other local banks.
Investors who could stomach the risk associated with the Eurobond have made a killing.
Business Day had reported last week that the struggling bank’s Eurobond presented a bargain opportunity for investors, seeing the price had slumped to 90 as against a par value of 100, less than six months to maturity.
S&P, Moody’s and Fitch all warned of a risk of default, saying they had little optimism that the bank would be able to sell its UK unit in time to repay its dollar obligations.
The Bank’s merger with Access bank means the latter will now be the one to pay international creditors for the loan taken in 2014 which falls due next May, squashing initial concerns over a possible default.
Access Bank will launch a subordinated rights issue of about $200 million to keep its capital well above regulatory requirements, bankers working on the deal said Tuesday.
Access Bank confirmed news of a merger deal with Diamond bank Monday after saying it signed a Memorandum of Agreement with Diamond Bank.
Access said in a statement that it emerged the preferred bidder after a competitive process undertaken by the Board of Diamond Bank.
The deal, worth some N72.33 billion, involves Access Bank acquiring the entire issued share capital of Diamond Bank in exchange for a combination of cash and shares in Access Bank via a Scheme of Merger.
Based on the agreement reached by both parties, Diamond Bank shareholders will receive N3.13 per share, comprising a cash consideration of N1.00 (one Naira) per Diamond Bank Share representing a total cash amount of N23.16 billion (US$ 75.58 million).
The offer represents a premium of 260 percent to the closing market price of N0.87 per share of Diamond Bank on the Nigerian Stock Exchange as of December 13, 2018, the date of the final binding offer.
Diamond shareholders will also be allotted roughly 6.6 billion new Access Bank ordinary shares, representing 2 new Access Bank ordinary shares for every 7 Diamond Bank shares.
Using Access bank’s closing market price of 7.45 per share Friday, 6.6 billion shares are worth N49.17 billion, taking the total value of the cash (N23.16 billion) and share deal to N72.33 billion, about $200 million.
The completion of a transaction would be subject to formal regulatory and shareholder approvals.
LOLADE AKINMURELE
